U.S. Supreme Court Raises Bar to Certify Class Actions

On March 27, 2013, the U.S. Supreme Court decision in Comcast Corp. v. Behrend¹ raised the threshold that must be met before a lawsuit can proceed as a class action. In the 5–4 decision, the Court ruled that federal courts must determine that the alleged damages suffered by a proposed class of plaintiffs can be measured on a class-wide basis before the courts certify a class action. The Court underscored that it was appropriate to consider the merits of the claim when making this assessment.

Although the dissent observed that the "Court’s ruling is good for this day and case only," the decision signals a higher hurdle for the certification of class actions even when the proposed class can show that liability issues common to the class predominate over issues affecting individual members.

The Predominance Requirement for Certifying U.S. Class Actions

To certify a class action, a U.S. federal court must conclude, among other things, that "questions of law or fact common to class members predominate over any questions affecting only individual members." The predominance requirement is meant to test whether a proposed class is sufficiently cohesive to warrant adjudication by representation.

Before Comcast, the predominance standard could be satisfied even if damages were not readily demonstrable on a class-wide basis. The decision in Comcast suggests that class plaintiffs will need to demonstrate that both liability and damages issues common to the class predominate over individual members’ issues.

The Case

In Comcast, the plaintiffs were subscribers of Comcast’s cable television services in the Philadelphia "Designated Market Area," comprising 18 counties in Pennsylvania, New Jersey and Delaware. They filed an antitrust action alleging the violation of antitrust laws through an alleged "clustering" scheme by which Comcast acquired a competitor’s cable television subscribers in one region (e.g., the Philadelphia market) and, in exchange, sold its systems to the competitor in another region (e.g., the Los Angeles and Palm Beach markets).

The plaintiffs alleged that Comcast’s clustering scheme harmed subscribers in the Philadelphia market by eliminating competition and holding prices for cable services above competitive levels. The plaintiffs presented four theories of antitrust impact, including an allegation that Comcast’s activities reduced the level of competition from "overbuilders" – companies that build competing cable networks in areas where an incumbent cable company already operates.

The Decision

The majority of the Supreme Court, in an opinion written by Justice Scalia, held that plaintiffs proposing to certify a class must satisfy the predominance test through "evidentiary proof" and emphasized that certification of a class is proper only if the test is met after a "rigorous analysis." Moreover, the Court acknowledged that this analysis will frequently overlap with the merits of the plaintiffs’ underlying claims.

Applying this standard, the Court concluded that the plaintiffs’ evidence did not establish that damages could be measured on a class-wide basis because their expert’s model did not identify the damages attributable solely to reduced competition from overbuilders. The Court further noted that the plaintiffs’ damages model did not demonstrate the requisite commonality because it failed to show that competition from overbuilding, absent Comcast’s deterrence, would have been the same in each county within the market. Due to the expert model’s failings, the Court ruled that subscribers within the Philadelphia market could not be treated as a class.

The dissent criticized the majority for reaching out to decide a case not suitable for the Court’s consideration. The case is unusual because the plaintiffs presented evidentiary proof of class-wide damages consistent with the theories of liability that they intended to prove at trial; yet the lower court certified a class limited to just one theory. For that reason alone, the dissent would have declined to take up the fact-intensive case in which the findings of two lower courts should have received deference.

Future cases in the lower courts that look to the Comcast decision for guidance may not present a similar factual scenario. Nevertheless, the lesson from the Supreme Court’s legal analysis is that plaintiffs looking to have a class certified must demonstrate that they can prove damages, on a class-wide basis, that result from liability on the same common factual and legal grounds.

Approach of Canada’s Supreme Court

This year, the Supreme Court of Canada will likely release at least one decision that considers a similar requirement – that there be "some basis in fact" to find that a case raises a certifiable common issue. It has heard argument in Sun-Rype Products Ltd. v. Archer Daniels Midland Company, in which the requisite evidentiary foundation for certification may be considered.

_________________________

¹ 569 U.S. –, 133 S. Ct. 1426 (2013) http://www.supremecourt.gov/opinions/12pdf/11-864_k537.pdf.